Outbound VC Dialing Programs – Total Disrespect for Entrepreneurs

Outbound VC Dialing Programs – Total Disrespect for Entrepreneurs

I recently got an email from a friend who had been approached by a well known VC. He sent me an email asking whether the approach was real and whether he should take it seriously. Here is the email he received (reprinted without names with his permission).

“Hi [entrepreneur],

I hope all is well. I’m an investor at [Big Name, Large Fund VC] and recently came across [Your Company].

It looks as though you’ve built a very interesting business, and I’d love to spend some time getting a better understanding of your future plans for the company and if there is an opportunity to partner with [My Firm].

In case you aren’t familiar, I’ve attached a brief overview on our firm. [It’s big, well known & we’ve invested in all of these really cool companies]

Do you have time for a half hour conversation over the next week or so? What fits your schedule?

Looking forward to speaking,

Name [redacted]

My response was:

“He’s an analyst, which means he’s very junior – probably 24. He’s on a fishing trip. No reason not to call him but I wouldn’t get too excited about it. Sorry.”

I know the firm well and I know the entrepreneur & his business well. There is no chance they’re going to invest and it’s not even a close match.

Why do VCs send generic outbound emails like this?

Many of the growth equity firms have had outbound dialing programs for years. Growth equity firms typically target profitable businesses that are often not technical in nature. These kind of companies were seldom startups. Perhaps outbound dialing / emailing programs worked well for growth equity firms in their core business. They must be trying to cull through large databases of mid-sized traditional businesses and trying to find deals before they’re spotted by investment bankers and flogged to everybody at once. Often these businesses have little or no press so it’s hard to tell what they’re doing and how well they’re performing.

So I guess with the high volume of businesses that they had to track and the large fees they were earning from their fund sizes having exploded they were able to hire tons of 22 year olds to pound the phone for 2 years before going on to another job. Classic boiler room stuff. This obviously has worked for them or they would have stopped doing it long ago. I’ve spoken to many of these “outbound dialers” and in almost all cases they said it was “a necessary evil” to get into the trade rather than a “worthwhile experience” in which they learned a great deal about entrepreneurship, startups or any given industry.

As a former startup CEO I fraking hated receiving these calls. Some young kid is calling me and clearly reading from a script and typing my answers like mad in the background to enter into some database that will be mined later. What a waste of my time. What disrespect they show founders / CEOs with these programs. The actual investment professionals (partners) are too busy to call companies that they’re interested in so they basically outsource it.

But how can you really outsource judgment to young, smart people who have often never worked in businesses? If the goal is simply to get the basic details (revenue, customers, staff numbers, prior funding) then no judgment is required. But if that’s all that they’re after then entrepreneurs should definitely be wary of taking these calls.

I have nothing against these young people – the dialers. They are often from the best universities: Harvard, Stanford, Wharton, Princeton, Yale. They are at the tops of their classes and want to get into private equity or venture capital some day. They’re willing to put in the hours pounding the phones and learn so that their CVs will have the top name private equity firms on them to get them back into the top-name MBA programs to come out and try and make investments for real.

I wish this awesome talent would be used to work for a startup so they could have more empathy as an investor down the line (or maybe they’d love it so much they’d stay at startups!).

But where this has really crossed the line with me is when they are database dialing startup tech entrepreneurs rather than growth equity businesses. Many of these entrepreneurs are young and impressionable and mistake the inbound attention for real interest. They’re flattered. These founders burn through precious time and divulge sensitive information. The blasé attitude of these firms having young people pretend to be interested in young startups on the hope that out of every 100 calls they might turn over 2 of interest that can be researched further drives me nuts.

And as a founder it was unbelievably obvious to me what was going on and I never wanted to do business with these firms again. So I have to imagine many other entrepreneurs felt the same. I know Jason Calacanis did because he and I have spoken several times on This Week in Startups & This Week in VC about how these programs are disrespectful. So to me they are really just diluting the power of their brands but because many of them have never been entrepreneurs they probably don’t even realize it.

I will never have anybody do outbound prospect dialing for me.

So how do I work with young VC professionals? We have two in our offices: Kelly Hwang & Dave Lin. I can tell you from working with them the past two years that both of them have great insights on various online business segments and I’ll frequently ask their opinions on performance-based marketing, eCommerce (Dave was at PriceGrabber), online gaming (Dave is a fanatic), digital living room, millennial points-of-view, etc.

Often if I’m interested in a company or market I’ll involve them in doing the analysis with me. They’ll make reference calls, call other players in the sector (always being explicit why they’re calling), talk to more team members from the company we’re looking at and do a deep dive on the business model and/or product. I trust their judgment, I value their insights and they have the time, capacity and knowledge to add value to the process. And when a founder or CEO of a startup is spending time with them they know that as a general partner of GRP I have expressed interest in their company and intent in investing if we can convince ourselves that it is a good opportunity.

And that is how it should be.

Dave Lin spent 4+ years inside a startup. He knows what life is like on a daily basis. Kelly is younger. So this summer we sent him to work in one of our portfolio companies in product management on our dime. Our goal was to give Kelly more exposure to what life is like inside a startup and what they do on a daily basis so that he could understand entrepreneurs better when dealing with them from our side of the table. And we’ve decided to keep this role going on a part time basis going forward.

So if you’re an entrepreneur and you get your inevitable inbound emails after your story on TechCrunch or your conference appearance do yourself a favor. Check the management / team page of the VC to check the level of the person approaching you. Make sure that if it’s not a partner you get the sense that the email is hand-crafted, personalized and sincere. Check out The Funded for their firms reputation and ask a couple of friends.

Ultimately if you take the call just be aware that you’ll eventually need partner support and if you politely turn down the request if it WAS serious interest you haven’t done yourself any harm. If you’re interested in more info on this topic I recently answered a similar question on Quora.

Summary of how to handle the inbound:

“if you get unprompted attention from somebody junior at a VC and you think they’re fishing it’s totally acceptable to politely say, “we’re not currently raising” or “we’ve already had some inbound interest from partner-level people at another VC” or “we’d be happy to meet in person and travel to you if you have a partner that has personally expressed interest.” If said in the right way this shouldn’t put anybody off. If it does then you KNOW they were only fishing”

This is the same thing they do when recruiting athletes for college. The shot gun effect.

http://deepdigitalmediathoughts.com jasonoliver

Great post Mark. It's awesome that GRP is giving Kelly the opportunity to taste the startup side of life in a product management role. I personally spent 2 years working in a collaborative environment at FirstMark Capital in NYC, and had the chance to spend some time with a couple of our NY-based portfolio companies to better understand the spaces I was sourcing startups in. I then left the junior VC world to head over to our LA-based portfolio co Riot Games, and after spending 1 year in product management, have moved on to managing our international publishing business. As someone very interested in getting back on the investor side later in my career, I think that the day to day at Riot has been invaluable in understanding how startups operate, and ultimately what startups need to do to achieve success (which is what investors need to guide their startups on, and why not having operating experience is perceived as a minus – yes I am from the Dave McClure school of thought on that front). In any case, I also know a lot of young smart people who just want to get into VC, and oftentimes, the easiest way to get a foot in the door is through one of these sourcing programs. Thanks for the thoughtful post and for shedding some light on this not-often-talked about VC industry issue.

http://www.creditcoachplus.com/ Andy Reuland

Wow, great post and creepy with the timing. Just got an identical email from big NY firm. Is your friend heading to Web 2.0 for the Startup Showcase later this month? Thanks for the heads up though, as a first timer I was immediately getting “pumped” about a VC contacting me! Now I have a better understanding of the situation and how to handle appropriately.

http://bothsidesofthetable.com msuster

Not too surprising at all. Funny how form letters have the exact same wording!

Venugopal Sathya

As usual a great article.

I couldn't agree more with your point of view.

Good to know that your VC firm send its juniors to get the real world experience of a start-up in one of your portfolio firms on a part time basis.

Thats a great way to get them some operating experience in a start-up.

Cheers,

VenugopalVengo Ventures.

http://naamanetworks.com/ David Bloom

Andy: I echo the comment on timing. Just got my own email from a big NYC firm. They said they were referred to me by a friend, but I assumed my friend was really the Web 2.0 Startup Showcase. Still, I did my own happy dance and forwarded it to my board asking if anyone had experience with the firm.

But you know, I've decided to still be happy about it. Just one more opportunity to build a relationship. Now, though, I will do so with my eyes open. Thanks, Brad. Very timely.

http://donaldryan.net DonRyan

Good for you for giving your junior folks the opportunity to see start-ups from the inside. It is the best way to understand what they're about and how the wheels turn. It is the rare VC (read: Fred Wilson) who can skip having an operating role at a start-up and still be uber successful. Also noted, fishing expeditions by VCs or private equity folks are despicable. It is disrespectful to people trying to build a meaningful business to waste their time in selfish pursuit. Great post.

DCTech

I have seen cold calling work in some instances. We had filed to go public, shelved due to market conditions and received a cold call from a large west coast crossover firm (we were East Coast) and it led to getting a sizable E Round getting completed before we ultimately IPO'd. An outlier I am sure but I am glad I answered the call.

http://twitter.com/PhilipHotchkiss Philip Hotchkiss

Unreal, database dialing for startups.

Mark nailed the post important point in my opinion for first time entrepreneurs – do NOT be flattered by these calls, do not let them throw you off your current funding path, which is likely still at the angel stage and take Mark's advice. If entrepreneurs get excited by these trolling expeditions on the part of VCs, they will be spending time on pre-mature pitch decks and rabbit holes.

In both of my startups, the only VCs I ever met/spent phone time with and closed a round with were partners in the firm before getting to know their principals and other team members.

http://twitter.com/PhilipHotchkiss Philip Hotchkiss

One more thought. When you think about what an entrepreneur goes through, the highs, the lows and everything in between. Raising money is always on your mind – especially in the angel stage where entrepreneurs are taking meeting after meeting hoping to land $20K checks with a few $100K+ investors here and there. Emotionally, it's grueling.

So when these auto-dialers reach an entrepreneur in this emotional state of “holy sh*t” we have to raise more money and I'm tired of pitching for $20K pops the natural reaction is to believe what one wants to believe.

This creates a fast moving ripple effect. The entrepreneur gets on the 'high' side of the cycle – jazzes up his/her team and then it affects how they act and communicate with the angel ecosystem that they desperately need until they've achieved the right milestones to go VC.

I've experienced these ripples when startup entrepreneurs have reached out to me for advice having been approached by big name VC firms – when in fact, they were approached by a low level associate that as Mark suggests were probably in auto-dial mode. But in the entrepreneurs mind, all they can see is the brand – the brand of the big name firm they have read and heard so much about.

This ripple effect is important, because again, if a team is diverted off course, taken up to the high point of the emotional cycle along with everyone in their professional and personal circles that they jazz up around this 'VC opportunity' then there will be a real cost (opportunity, emotional hangover, de-focusing, burning of precious cash, etc.) in the hangover phase.

http://giffconstable.com giffc

I had to do this for Broadview at age 22 when we had buy-side clients – we would essentially troll all the startups in an industry sector. Sophisticated entrepreneurs knew this was just sniffing – they would talk to us anyway because it was worth getting on buyer radar screens. The redeeming aspect of this kind of work to the young person doing it is a fledgling, albeit only fledgling, exposure to sales and cold calling and getting total strangers to talk to you.

Because I knew the game, I have never been offended by it as an entrepreneur. Glad that you are writing about so that it is clear what is going on.

philsugar

The ones I hate are where they are gathering information and aren't up front about it.

If you are gathering information the first thing you should do is provide your viewpoint and information. If that's valuable I'll exchange value and provide information.

Where I get really offended is where the person is just asking for information assuming you are willing to give valuable information and when you ask them for their insights they say…ummmmm. Really makes one sound like Patrick the Starfish from SpongBob. (reference you'll only understand if you have young kids)

http://www.andrewice.tumblr.com/ Andrew Ice

I was a junior employee at a well known VC for nearly two years (this firm does not invest in internet companies) and did a version of this that I thought was actually fairly helpful for both the entrepreneurs and the partners I worked for. It was not a shotgun approach, however. A couple caveats that I think differentiated it:

1. I probably sent a relatively in depth email to a founder I did not know, once a month. This was in no way a form email. I only contacted startups that fell deep into an area of my and the firms expertise and seemed groundbreaking from an MIT TR article or something of that nature.2. I always identified myself as a junior employee and explained up front who would have to be convinced to make an investment.

My partners wanted me to contact startups I was interested in, but explicitly asked me to be pretty selective. They trusted my judgement. Out of the 20 or so companies I contacted like this, 1 received funding from us which isn't a bad ratio.

I agree that young startup CEO's can be overly excited that a VC has contacted them, but I also think they see through the BS pretty quickly on the first call if the analyst is asking questions that make it pretty clear they don't know anything about the industry. The best VC's stick to what they know well (this is why my old firm doesn't invest in the internet!)

http://twitter.com/joshuabaer Joshua Baer

I'm glad somebody finally said it. In my experience, the analyst usually hasn't even read the website nevermind looked up your funding history or done a little homework.

Kylepearson

If a young person was ultimately interested in VC for a career, but knew that being a part of a start up would be beneficial for their chances at getting into VC, how should they go about finding start ups to match their skill set? Or should they just shoot for the analyst position right away?

ph0ust

Great post Mark. One thing that I'd like to see a bigger discussion on the staffing strategy at most VC. The hiring of young people from the best universities seems to do nothing, in my opinion, other than perpetuate a sense of elitism and arrogance in the VC community (generally speaking). I stand behind great universities and great educations, but I could care less about a MBA from <insert great=”” here=”” university=””> meaning anything more than filling time in life with additional education that could be better learned more tangibly on the job. Understand that there is nothing wrong with it, but it certainly does not mean that those people understand how a start up is built. In my company, I'd rather have someone with start up experience who has been in the trenches and came out having got the job done before.

Why aren't VC focused more on bringing in the experienced entrepreneurs, rather than the top-level grads? “Teaching” how to invest in start ups seems rather foolish, when you have a community of people who built all the companies these guys want to invest in. If VC required start up experience to get the job, perhaps these threads would have a very different appearance to them.

Personally, as long as I have the luxury I won't talk to any VC who has not walked a mile in my shoes. I've spent a lot of time with smart, successful operators who became VC, but running a Fortune 500 company is nothing like building a tiny start up from nothing. For the record, many, maybe even all, these people are smarter than me and a lot more successful than I may ever be. However, their ideas and strategies always seem strangely similar, even if they have become very good at picking winners in the start up community. </insert>

http://twitter.com/IBAssociate Entreprenuer TechIB

You're right – I had an uncounted number of scholarship offers from “assistant” coaches – that ended up boiling down to two real offers – it was a total waste of my time.

http://www.dogster.com Ted Rheingold

Hah! It took me a while to translate these emails when I first start getting them, and I'd think we'd finally found a lead-VC champion that would VIP us through the process. Then after a couple calls that sounded like someone going through a check-list of questions and the 'let's stay in touch' closing, I understood what was going on.

I'd just add the one reason to not even taking the call at all is time lost. You get 4 of these in a month and you have 4 very probing discussions with a near stranger with very little pull in their firm in a month. This is great if you're looking to raise a round and need a first connection. But I've found the calls to be almost non-beneficial to your own company if you are note. The analysts aren't really in a position to be giving deep insights based upon their investing trends.

I now have a stock reply which, in abbreviation, is “Thank you for your interest. We are in a deep execution period building a much bigger version of our company. We'll be considering raising funds in Qx if you would like to reach back then.” They always reach back then.

As a banker who has spoken with many clients/prospective clients who receive early-stage and growth equity calls from junior folks I think it's just as disruptive to firms no matter what stage. Most CEOs I work with just don't have the experience to know that given the statistics, they need to receive between 50-100 calls from outbound dialers in order to close an investment.

So how do you close the gap between it generates returns for the fund and is disrespectful for entrepreneurs?

One idea: use resources such as this blog to build your name and reputation with entrepreneurs…other ideas?

mikemcgrath

I got this automaton response before and its turned out to be a nightmare on many levels.

Len_Williams

Excellent post. Indeed, usually VCs are too busy to start calling entrepreneurs, they've probably got piles of executive summaries and countless teaser emails in their inbox to deal with, sent by entrepreneurs, as well as other business to fill their time. This quite weird trend that you mentioned would make some inexperienced entrepreneurs think there's money everywhere just waiting to be invested, you should just come up with something, anything…and they'll die to fund you. I'm also wondering if there's a happy ending in the case of, for example, people desperately posting their business ideas(with lots of details) on various forums and waiting for business investors to find them and read everything, click on the links, ask for more details. Is this the way to raise venture capital? I think we all need more how-to-do-it articles from you. Thank you, Len.

http://blog.mytradingnet.com Eradke

Yeah it was somewhat of a let down but it all worked out in the end.

http://www.dogster.com Ted Rheingold

Heh! Just got a fresh one in the inbox today

http://www.linkedin.com/in/eyalgoldwerger goldwerger

Great post..

Never got a serious partner follow up on any unsolicited analyst inbound.

The only thing to do is be polite and wrap up in 5 min…;)

http://twitter.com/spievak Jason Spievak

Lots of pros and cons here. The economic rationale for this approach is obvious, as are the reasons for being offended by it. We get these approach calls at least weekly. I take these junior calls and am willing to give them ten minutes each. The reason I do — other than for remembering my own entry level days in investment banking — is that just such an unsolicited junior approach from Insight Ventures led to our mezzanine round and subsequent IPO at our last company. My approach to them is that I politely hear out the junior person for a few minutes and then, after a couple of personal questions to help them feel loved, I ask them which partner within their firm has the most relevant experience in our market space. Within a few minutes, either I have a call scheduled with a senior partner at the firm or I've moved on with one more frog kissed.

guest

Could someone elaborate on this sentence?

“They must be trying to cull through large databases of mid-sized traditional businesses and trying to find deals before they’re spotted by investment bankers and flogged to everybody at once.”

http://twitter.com/IBAssociate Entreprenuer TechIB

These shops want to get to know companies before investment bankers do. Once investment bankers are involved with a Company, there's going to be competition (or the appearance of competition) in order to drive up price for the Company.

This obviously is a worse for any investor/buyer who wants to get in on the Company at a lower price.

guest

I understand why the VC wants to get there first, but why the company would not want to shop?

http://twitter.com/joshpayne Josh Payne

I want to give a big thumbs up to the approach Mark is taking here with his young associates. I was offered one of these boiler room type jobs out of school but decided against it to do something with more direct experience at a software company. I would have leapt at the opportunity to do product management at a portfolio company prior to going back into a role with a partner at a VC firm as mentor.

http://twitter.com/HOTSMART Juan

I would only accept capital from somebody willing to also work with me and I would be the one approving or qualifying them, not the other way around. I guess I will have to grow slowly http://www.HotSmartUSA.com/specsJuan J. Ramirez

http://twitter.com/HOTSMART Juan

This info about #VC is interesting #startup #entrepreneur #hotsmart

http://www.ryanborn.net ryanborn

Yesterday, I a guy from XXXXX Partners in Palo Alto email me today asking for my time. It was obvious that

1. His firm did not invest in our space, and2. They did not invest in companies of our size

I flat out asked him if he was doing competitive due diligence. He denied. Then I simply sent him to this blog post to read and after he read it I told him that if he still felt the need to chat with me I he should follow up. Silence now. Thanks for the post Mark! You just saved me 30 to 45 min!

http://petegrif.tumblr.com/ Pete Griffiths

And while we are on the subject of disrespect. Is it too much trouble to have good manners? There are plenty of other ways of disrespecting entrepreneurs, or indeed anyone, and I don’t care how busy you are, some people manage good manners.

Steve Papas

Mark have you written anything about VC’s that invest in companies competing in the same space or that have overlaps and how they balance this? Love to hear about that from your perspective.

http://twitter.com/rodolfor Rodolfo Rosini

Had BV Capital sending me emails like that, just took the call politely saying that if they wanted to keep discussing I’d be delighted to have a 10 minutes chat with a partner before engaging with an associate.

No point in removing names. If we don’t like this behavior naming them should be our starting point.

http://influitive.com/ Abdallah Al-Hakim

great post and very valuable to many startups. I always had the notion that the best VC partners are out there in the virtual and real world getting to know the startups in their area of focus. I definitely agree with you that if an entrepreneur gets too excited and then realized that this was nothing but a cold call then the chances are he/she will be turned off from doing business with that particular firm.

Blcarey

I’ve only had one encounter with said “dialers”. It’s true, they’re just kids who have no idea about how to run a successful startup or business… but that’s not their jobs. So instead of answering their questions, maybe we should ask to speak to their bosses, because we’re going to need them sometime.

Mark Suster is a 2x entrepreneur turned VC. He joined Upfront Ventures in 2007 as a General Partner after selling his company to Salesforce.com.